3/22/2006

Worker Shortages in China

This article in BusinessWeek (hat tip: ArrogantAthiest commenting at Samizdata) discusses how a shortage of skilled workers in China is causing wages to grow rapidly. Salaries at multinational firms in China increased 8.4% last year, and job turnover jumped to 14%. At the same time, working conditions are improving dramatically, as employers must compete for skilled employees.

This is having several cascading effects. Internally in China, the multinationals are building infrastructure further inland in search of cheaper labor, helping to extend prosperity to the peasants that have long been the Communist Party's most loyal dependents. I suspect that this will reduce the relative power of the government in the long run, which is good. At the same time, the existing middle class on the coast is becoming stronger, and is beginning the cycle of endlessly-rising expectations that is the first nail in a centrally-planned economy's coffin. All the best state employees are being poached away by multinationals, hastening the demise of state-owned companies.

At the same time, the increase in wages may slow the exodus of manufacturers to China, easing some of the protectionist pressures that have pushed the West into some asinine economic policies. (On the other hand, more companies may move to Vietnam or Cambodia instead. Ah well.) Perhaps this will give the United States more time to transition more completely to an Information Economy.

On the other hand, only China's low prices have saved us from broad inflation over the past few years. Now that the party is coming to a close, we have already begun reaping the fruits of our reckless monetary and fiscal policy. Inflation is creeping up, rates are rising, and yet Congress still spends money like there is no tomorrow. Yet tomorrow will always come, and in this case it is a tomorrow without the safety-valve of low Chinese business costs. We should plan accordingly.